JAL Could Be First Huge Airline Chapter 11 in Years

JALA number of media, including the Nikkei business daily, are reporting that the Japanese government is considering taking its huge flagship carrier JAL into bankruptcy. The news follows recent proposals by both American (AMR) and Delta (DAL) over the last several weeks to put $1 billion into JAL. Their motivation: to get special access to JAL routes throughout Asia.

A bankruptcy might make it easier for the airline to cut employees and routes and perhaps restructure debt -- actions that could allow the carrier to move back toward profitability as the economy improves.
%%DynaPub-Enhancement class="enhancement contentType-HTML Content fragmentId-1 payloadId-61603 alignment-right size-small"%% The news will send a shudder through an industry already concerned about how an alleged terrorist attempt on a Northwest flight from Amsterdam to Detroit will affect customer traffic. The International Air Transport Association, which represents 230 carriers, projects that the industry will lose $5.6 billion in 2010.

The airline industry has routinely used bankruptcy as a way to cut debt obligations and renegotiate labor contracts. In JAL's case -- -- one of the ten largest airlines in the world by most measures -- a bankruptcy would make it the first major airline bankruptcy in years.

And heading into 2010, next year could be one of significant restructuring in the airline industry particularly if debt-burdened carriers like JAL face stagnant revenue as passengers continue to stay on the ground.

Douglas A. McIntyre is an editor at 24/7 Wall St.

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